The Law Firm for Non-Profits Bloghttp://www.501c3lawblog.com
Wed, 27 May 2020 01:02:18 +0000en-US
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3232SBA Clarifies PPP Loan Review Rules, Brings Reliefhttp://www.501c3lawblog.com/sba-clarifies-ppp-loan-review-rules/
http://www.501c3lawblog.com/sba-clarifies-ppp-loan-review-rules/#respondWed, 27 May 2020 17:00:54 +0000https://www.501c3lawblog.com/?p=2845The most recent guidance from the Small Business Administration (“SBA”) on the Payment Protection Program (“PPP”) clarifies various components of its anticipated PPP loan review process. In addition to releasing the forgiveness application, which includes forgiveness calculation worksheets, the SBA guidance explains the review process and provides clarity on some of the eligibility requirements that …

]]>The most recent guidance from the Small Business Administration (“SBA”) on the Payment Protection Program (“PPP”) clarifies various components of its anticipated PPP loan review process. In addition to releasing the forgiveness application, which includes forgiveness calculation worksheets, the SBA guidance explains the review process and provides clarity on some of the eligibility requirements that were ambiguous when organizations first submitted their applications.

Congress created the PPP through the CARES Act to provide forgivable loans to small businesses, including 501(c)(3) and 501(c)(19) nonprofit organizations. In order to qualify for forgiveness, an organization must use the loan proceeds to cover payroll costs, mortgage interest payments, rent, and utilities during the eight weeks after it received the loan and use at least 75% of loan proceeds for payroll costs.

Certification of Need

After many PPP applicants had already received their loans, the SBA released guidance that scared and confused borrowers into questioning whether they were eligible for the loan in the first place. Additionally, comments made by Treasury Secretary Mnuchin suggested many organizations that received a PPP loan did not actually meet the necessity certification requirements. The SBA published additional guidance last week, which eased the panic created by these actions.

In an FAQ issued May 19, 2020, the SBA announced a safe harbor for PPP borrowers of less than $2 million. It states that such borrowers “will be deemed to have made the required certification concerning the necessity of the loan requested in good faith.” Thus, if an organization borrowed less than $2 million, the SBA will not review whether or not it had a need for the loan at the time it applied. The SBA may still audit such organizations for other reasons, as stated below.

The SBA has also provided relief to PPP borrowers of more than $2 million. Although the SBA will audit these organizations to determine if they had a need for the loans at the time they applied, if the SBA determines they did not have such need, the SBA will merely “seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness.” The SBA will not penalize the organization if it returns the loan.

SBA PPP Loan Review

Additional guidance clarifies the SBA’s PPP loan review process. The SBA has suggested that it may review any PPP loans, at any time at its discretion. The review may include whether a borrower correctly calculated the loan amount, properly used the loan proceeds, and/or is entitled to the loan forgiveness amount sought.

Presumably, this includes borrowers with loans of less than $2 million. The SBA previously stated that it will focus on auditing loans of $2 million or more. However, the new guidance suggests that the SBA may review any borrower. With the safe harbor, discussed above, the SBA will only audit borrowers with loans of $2 million or more for certification of need, as borrowers of less than $2 million automatically meet the certification requirement.

Contact Us

If you have questions or would like assistance with PPP loan forgiveness, please contact the Law Firm for Nonprofits.

]]>http://www.501c3lawblog.com/sba-clarifies-ppp-loan-review-rules/feed/0SBA Releases PPP Loan Forgiveness Applicationhttp://www.501c3lawblog.com/ppp-loan-forgiveness/
http://www.501c3lawblog.com/ppp-loan-forgiveness/#respondMon, 18 May 2020 22:43:42 +0000https://www.501c3lawblog.com/?p=2842On May 15, 2020, the Small Business Administration (SBA) released its PPP loan forgiveness application and instructions providing guidance to PPP loan borrowers. The welcome instructions come more than six weeks after PPP loan applications were first accepted. The guidance strays from the original legislation (the CARES Act) in some parts and clarifies some of …

The guidance strays from the original legislation (the CARES Act) in some parts and clarifies some of the gray areas created by the CARES Act and interim guidance from the SBA. The SBA has also announced it will soon issue regulations and additional guidance to assist borrowers with completing their applications.

The CARES Act established the PPP, or Paycheck Protection Program, in response to the COVID-19 pandemic as a government program to provide forgivable loans to small businesses. Businesses were to use a majority of the PPP loan funds to maintain their payroll for at least eight weeks after receiving the loan. The PPP Loan Forgiveness Application, described below, details the amount of forgiveness available to PPP loan recipients.

Overview of the PPP Loan Forgiveness Application

The PPP Loan Forgiveness Calculation Form

Borrowers will use the PPP Loan Forgiveness Calculation Form to calculate the amount of loan forgiveness they are eligible for. To begin the calculation, borrowers will need to enter the costs incurred or paid for during the covered period (described in more detail below). These costs can include payroll costs, mortgage interest payments, rent or lease payments, and utility payments. If a borrower did not fully maintain its payroll during the covered period, or if payroll costs were less than 75% of its total costs, the calculations described below will reduce the amount of forgiveness the borrower is eligible for.

The PPP Schedule A

Borrowers will use the PPP Schedule A to calculate adjustments to the costs they incurred or paid for during the covered period. Since the purpose of the PPP is to encourage employers to maintain their payroll, a borrower will adjust its forgivable amount if it reduced its payroll.

To determine what payroll costs are eligible for forgiveness, borrowers must first itemize compensation paid to employees, employer contributions for health insurance and retirement plans, and employer portions of state and local taxes. Then, the borrower must determine if it will need to make adjustments to the forgivable amount. If the borrower reduced its number of employees during the covered period, then the applicant will need to calculate its full-time equivalency (FTE) reduction amount. If the applicant reduced the average paid hours of its employees during the covered period, then it will need to calculate its salary/hourly wage reduction amount. These two calculations will be entered on the PPP Loan Forgiveness Calculation Form and will reduce the amount of forgiveness the borrower is eligible for.

The PPP Schedule A Worksheet

Borrowers will use the PPP Schedule A Worksheet to calculate compensation paid to employees, the FTE amount (if there is a reduction in full-time employees), and the salary/hourly wage reduction amount (if they reduced any employees’ salaries or hourly wages by more than 25%). Borrowers will input these calculations on the PPP Schedule A. The borrowers will use these calculations to determine the total amount of forgiveness they are eligible for. Borrowers do not need to submit the Worksheet with the application.

Attachments

In addition to the PPP Loan Forgiveness Calculation Form and the PPP Schedule A, the borrower must submit the following documents with its application for forgiveness:

Documentation showing the number of employees on payroll from February 15, 2019 through June 30, 2019 and from January 1, 2020 through February 29, 2020 (different periods are acceptable for seasonal employers); and

Additional Records

Borrowers must also maintain, but not submit, the following additional records for six years after the date the loan is forgiven or repaid in full:

The PPP Schedule A Worksheet, or an equivalent form, and the documentation supporting the calculations; and

All records relating to the PPP loan, including the documentation submitted with the application and documentation supporting the necessity certification.

Additional Guidance on PPP Loan Forgiveness

The instructions to the PPP Loan Forgiveness Application stray from the CARES Act in one important respect. The CARES Act defined the covered period as the eight-week period starting from the date the borrower received PPP loan funds. The instructions allow for an alternative covered period for administrative convenience. If a borrower is on a biweekly, or more frequent, payroll schedule, it can elect to begin its covered period on the first day of the first pay period following receipt of the PPP loan.

The instructions also clarify the following confusing areas:

Calculated expenses include accrued expenses that have not yet been paid;

The rule that 75% must be spent on payroll costs is clarified to apply to 75% of the requested forgiveness amount, not 75% of the total loan amount (which means that if more than 25% of the loan proceeds were spent on non-payroll costs, the applicant is not disqualified from forgiveness, but the amount of forgiveness is reduced);

Full-time is defined as 40 hours or more; and

The calculation procedure for determining a borrower’s forgiveness amount (guided by the PPP Schedule A Worksheet) is now clearer.

What remains unclear is how the guidance will apply to each borrower’s particular circumstances. To protect the maximum amount of forgiveness your organization is eligible for, it is important to maintain proper records during its covered period. If you have any concerns about what your organization needs in order to apply for forgiveness, please contact The Law Firm For Nonprofits.

]]>http://www.501c3lawblog.com/ppp-loan-forgiveness/feed/0Nonprofits Struggle with PPP Loanshttp://www.501c3lawblog.com/ppp-loans/
http://www.501c3lawblog.com/ppp-loans/#respondWed, 13 May 2020 20:42:15 +0000https://www.501c3lawblog.com/?p=2840Nonprofits have been struggling to successfully apply for PPP Loans under the Paycheck Protection Program (PPP). PPP is the government program that provides forgivable loans to small businesses that keep their employees. Whatever the reasons, nonprofits with 500 or fewer employees are encouraged to apply. As of this writing, $125 billion remains to be distributed. …

]]>Nonprofits have been struggling to successfully apply for PPP Loans under the Paycheck Protection Program (PPP). PPP is the government program that provides forgivable loans to small businesses that keep their employees. Whatever the reasons, nonprofits with 500 or fewer employees are encouraged to apply. As of this writing, $125 billion remains to be distributed.

The question this blog tries to answer is: Why does this struggle exist? It seems there are at least two causes. One is the lack of guidance from the Small Business Administration (SBA), which administers the PPP. The other is inadequate business practices that are common among many nonprofits.

SBA Guidance on PPP Loans

One reason for the chaos is due to a lack of guidance from the SBA, both to would-be borrowers and to lenders. In addition, what little guidance there is constantly changes, adding to the chaos.

In part, this derives from the quick start to the program. Congress mandated that banks accept loan applications one week after the enabling legislation, the CARES Act, passed. SBA launched the program so quickly that many banks felt they did not have the guidance they needed to accept loan applications until the first round of funding was already depleted. In addition, many banks that nonprofits use were not SBA-approved lenders, thus could not offer PPP loans at all.

Making this worse for nonprofits was that some banks pushed harder to get PPP loans for their larger clients and those with outstanding loans – basically protecting the banks’ interests. As a result, smaller customers and those without outstanding loans – many of which were nonprofits – received inadequate guidance from their banks. By the time those banks processed the nonprofits’ loan applications, their allocation of PPP money had gone dry.

Nonprofit Business Practices

While many nonprofits are well run and have good financial record keeping and reporting practices, many others do not. Those nonprofits also often lack a relationship with a capable CPA. To be fair to these nonprofits, this is true for many small for-profit businesses as well. Regardless, because these nonprofits’ accounting records were not compliant with generally accepted accounting principles, they had difficultly compiling the payroll and other information required for PPP loan applications.

For some other nonprofits, the boards of directors were reluctant to approve PPP loans. At least in some cases this was due to uncertainty about the program. This is understandable but should no longer be a hinderance.

There is Still Time to Apply for PPP Loans

The initial PPP funding was fully committed within two weeks of initiation of the program. Fortunately, Congress approved additional funding on April 24, 2020. $125 billion in PPP funds is still available to qualified applicants. Nonprofit organizations that have not been able to receive funds yet should not give up. If your organization needs assistance with the PPP loan, please feel free to contact The Law Firm for Nonprofits for assistance.

]]>http://www.501c3lawblog.com/ppp-loans/feed/0Nonprofit Operations During a National Emergencyhttp://www.501c3lawblog.com/nonprofit-operations-during-a-national-emergency/
http://www.501c3lawblog.com/nonprofit-operations-during-a-national-emergency/#respondFri, 08 May 2020 17:00:20 +0000https://www.501c3lawblog.com/?p=2837As the COVID-19 pandemic disrupts normal nonprofit operations, many nonprofit leaders are wondering how to operate their organizations during a national emergency. For many nonprofit boards, this may be the first time they have had to govern during a crisis. Although it may be difficult, or at times impossible, to continue with normal board actions, …

]]>As the COVID-19 pandemic disrupts normal nonprofit operations, many nonprofit leaders are wondering how to operate their organizations during a national emergency. For many nonprofit boards, this may be the first time they have had to govern during a crisis. Although it may be difficult, or at times impossible, to continue with normal board actions, such as holding an in-person board meeting, nonprofit corporation laws in states such as California, described in this blog, can help make the process easier.

How to Apply these Rules to Nonprofit Operations in a National Emergency

Bylaws

First review your organization’s bylaws. If they include emergency provisions compliant with your state’s nonprofit corporations laws, your nonprofit should be able to utilize them. If your organization’s bylaws do not contain emergency provisions, now might a good time to consider adopting a new set of bylaws that contain such provisions.

Board Meetings in an Emergency

Since the stay-at-home order was issued by Governor Newsom, in-person board meetings are no longer permissible. However, that doesn’t mean boards should stop holding meetings. Here are some tips for conducting board meetings during this time:

Conduct your meetings electronically. You can hold your regularly scheduled meetings by phone or by using a video conferencing platform such as Zoom.

If you host a meeting electronically, everyone must be able to hear one another; however, it is not necessary for everyone to see one another.

Call a special meeting of the board to discuss and vote on emergency governance matters that cannot wait until a regularly scheduled board meeting.

If a vote or any other action is taken during an electronic meeting, the board must maintain a record of that vote or action (i.e., by maintaining meeting minutes).

Become familiar with Zoom, or a similar video conferencing platform.

Zoom has several features that can assist boards during their electronic meetings, including:

Individuals can raise their hand to cast a vote or indicate that they would like to speak on a matter,

A moderator can control muting and un-muting individuals so that every person has an opportunity to speak without interruption, and

The host can create a waiting room to individually invite each board member into the meeting, ensuring each participant’s identity.

By using these methods, nonprofit boards can continue governing their organizations, with a few modifications. Please contact The Law Firm For Non-Profits for more information regarding nonprofit operations in emergency situations.

]]>http://www.501c3lawblog.com/nonprofit-operations-during-a-national-emergency/feed/0PPP Loan Uncertaintyhttp://www.501c3lawblog.com/ppp-loan-uncertainty/
http://www.501c3lawblog.com/ppp-loan-uncertainty/#respondTue, 05 May 2020 20:01:42 +0000https://www.501c3lawblog.com/?p=2835In the wake of the chaos of applying for a loan under the Paycheck Protection Program (PPP), borrowers are now uncertain if they even qualify for the PPP loan they have already received. The Small Business Association (SBA) released an updated FAQ with guidance that should make borrowers think harder about the required certification they …

]]>In the wake of the chaos of applying for a loan under the Paycheck Protection Program (PPP), borrowers are now uncertain if they even qualify for the PPP loan they have already received. The Small Business Association (SBA) released an updated FAQ with guidance that should make borrowers think harder about the required certification they made upon applying for the PPP loan. Additionally, comments by Treasury Secretary Mnuchin suggest that many companies who received a PPP loan do not actually meet the certification requirements – and will be audited. Although Treasury Secretary Mnuchin’s comments were mainly directed at publicly traded companies with ready access to capital, the SBA guidance regarding the required certification applies to all borrowers, including nonprofit organizations.

What does this mean if your organization has already received a PPP loan?

1. Ensure your organization met the certification requirement at the time it applied for the PPP loan.

The CARES Act requires loan applicants to certify, in good faith, that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the borrower.” In the absence of further guidance from the government, it was reasonable to interpret this literally. The threshold appeared to be relatively low, as most organizations’ operations will be reasonably uncertain as a result of the COVD-19 pandemic. Additionally, applicants did not have to prove that they did not have alternative access to credit to properly make the certification.

The SBA released additional guidance in the form of FAQ 31, essentially retroactively amending the certification criteria. Although the guidance alludes to the original certification language, it also states that applicants should take into account “their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” This statement seems to backtrack upon the original requirement that the applicant can have other sources of credit and still qualify for the PPP loan.

Unfortunately, the only example the SBA provided for a business not able to make the certification is a public company with substantial market value and access to capital markets, so it is very unclear how this will apply to nonprofits.

2. Document your organization’s analysis to support its certification.

In a joint statement issued on April 28, 2020, Treasury Secretary Mnuchin and SBA Administrator Jovita Carranza said all borrowers that received more than $2 million will be audited, and that others may be audited as well. Therefore, it is important to document your organization’s analysis in support of its certification. Such documentation can include:

Meeting minutes detailing the Board of Directors’ discussion of the uncertainties your organization faces as a result of the COVID-19 pandemic,

Financial statements detailing your organization’s assets, liabilities, revenue, and expenses at the time it applied for the PPP loan,

Proof of your organization’s inability to borrow additional funds (such as a lender’s denial of a loan request), and

A description of the direct impact of the crisis on your organization (such as a reduction in donations or grants as compared to last year).

The SBA is allowing borrowers that are unsure about their certification to return their funds by May 14th to avoid any potential penalties or imprisonment. The SBA Application provides for punishment under both criminal and civil laws if an applicant knowingly makes a false statement. If your organization can do without PPP loan funds, it may consider returning the funds to avoid scrutiny.

Any certification your organization made when applying for a PPP loan need not be perfect to pass muster, however, it must be reasonable. If you are uncomfortable with your organization’s certification, please contact the Law Firm For Nonprofits for additional guidance.

]]>http://www.501c3lawblog.com/ppp-loan-uncertainty/feed/0Artists Performing in Quarantine Bring Joy and Optimismhttp://www.501c3lawblog.com/artist-perform-in-quarantine-bring-people-together/
http://www.501c3lawblog.com/artist-perform-in-quarantine-bring-people-together/#respondWed, 15 Apr 2020 03:55:27 +0000https://www.501c3lawblog.com/?p=2829Artists performing in quarantine have been live-streaming and posting performances from their homes, including multi-artist ensembles of theater, music and even dance

]]> In a time of crisis, artists performing in quarantine are bringing people together and giving us a sense of joy and optimism. Monday, we blogged about how hard the COVID-19 crisis is hitting the arts. Yet artists of all kinds are using the Internet in innovative ways to bring joy to the world and bring people together.

Artists Stream From Their Homes

At least since late March, artists performing in quarantine have been live-streaming and posting performances from their homes, including multi-artist ensembles of theater, music and even dance. Many do so with uncertain incomes and futures. Yet they play on – for us. For all of us. Some have even turned their quarantine performances into fundraisers.

These artists deserve real and virtual applause and thanks from their audiences. Take a break from your day – especially if you’re feeling blue, lonely or stir crazy – and take in some of these free, streaming performances. And if you have the means, support the artists and organizations who bless us with their superb skill and artistry by making a donation (if they provide a link).

Check Out “in Quarantine” Performances

Here are just a handful of examples. Use the comment box, below, to share others quarantine performances that you’ve seen.